A lack of forwarding thinking, having no Finance Forecasting is a problem for businesses. It’s much like turning off the light and trying to find your way around an unfamiliar place in the dark. There is very little in the way of direction.
While financial forecasting is not set in stone, it can certainly help. After all, looking ahead can prepare you in many ways.
When you run a business, it’s a constant battle. One where you have to overcome challenges and ensure your business is ready. This is where finance forecasting can make a difference.
What does Finance Forecasting Mean?
A finance forecast will provide you with insight into how your business will look in the future. An example of this is a prediction of how much revenue your business will generate. This kind of information makes it easier for you to make informed decisions and that’s key as a business owner.
Additionally, you can use finance forecasting to predict other revenue. This can include fixed costs, capital and variable costs. Furthermore, you can use historical performance data to identify any possible trends. As a result, it will empower you to allocate resources after predicting what might happen in the future.
Why is it so Important?
It’s important that business owners make the right decisions. This makes finance forecasting an important part of business. Additionally, investors will make decisions around financial forecasts while objectives and budgets can be put in place.
It can be too easy to analyse past financial data but that will only leave questions unanswered such as:
- What will the financial situation of my company look like in the future?
- How much money can shareholders be paid this year?
- How much money can we turnover in order to pay back outstanding debts?
- Over what period of time will debts be repaid?
- Over the next 6 to 18 months, how will the cash flow and profitability look?
The different types of Finance Forecasting
There are two forms of finance forecasts. These are Quantitative Forecasts and Qualitative Forecasts.
Quantitative Forecasts
You can use historical data to forecast possible trends and patterns. The results will be more realistic than speculative forecasts making them more reliable. However, where historical data is not available, it is not a method that can prove effective. This is the reason why both quantitative and speculative forecasts are used.
Qualitative Forecasts
It’s possible to speculate when you use intuition and experience. This is because you can connect events and understand context – something that computers cannot do. However, when people adopt this method, bias can prove a problem. It can also be difficult to analyse large amounts of data too. So, you should use this method where there is not a lot of historical data. This is why it is the option that works best for small businesses.
Nobody can predict the future but businesses have to make decisions. This is where finance forecasting can help to inform decisions and reduce risks.
Conclusion
Finance Forecasting is not about crystal ball gazing, and hoping for pot luck. Developing your forecasting skills and know how is a a must do, not a nice to do. If you’re ready to take control of your business finances, sign up for our Cloud solution today – we offer a free trial so you can try before you buy. And if you have any questions, don’t hesitate to get in touch – we’re always happy to help.
Sign up for your FREE trial to Numbers Knowhow, the revolutionary cashflow software designed to empower you with the numbers you need to transform your business. With Numbers Knowhow, you’ll have access to powerful tools and features that will unlock a world of financial understanding and growth.